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G.R. Nos. L-10837-38 May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,

vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.

Facts:

Valino & Valino were the owners and possessors of a house of strong materials in Rizal, which they
purchased on installment basis. To enable her to purchase on credit rice from NARIC, Valino filed a bond
(P11,000) subscribed by Associated Insurance and Surety Co Inc, and as a counter-guaranty, Valino
executed an alleged chattel mortgage on the aforementioned house in favour of the surety company. At
the same time, the parcel of land which the house was erected was registered in the name of Philippine
Realty Corporation.

Valino, to secure payment of an indebtedness (P12,000) executed a real estate mortgage over the lot
and the house in favour of Iya.

Valino failed to satisfy her obligation to NARIC, so the surety company was compelled to pay the same
pursuant to the undertaking of the bond. In turn, surety company demanded reimbursement from
Valino, and as they failed to do so, the company foreclosed the chattel mortgage over the house. As a
result, public sale was conducted and the property was awarded to the surety company.

The surety company then learned of the existence of the real estate mortgage over the lot and the
improvements thereon; thus, they prayed for the exclusion of the residential house from the real estate
mortgage and the declaration of its ownership in virtue of the award given during bidding.

Iya alleged that she acquired a real right over the lot and the house constructed thereon, and that the
auction sale resulting from the foreclosure of chattel mortgage was null and void.

Surety company argued that as the lot on which the house was constructed did not belong to the spouses
at the time the chattel mortgage was executed, the house might be considered as personal property, and
they prayed that the said building be excluded from the real estate mortgage.

Issue:

There is no question over Iyas right over the land by real estate mortgage; however, as the building
instructed thereon has been the subject of two mortgages, controversy arise as to which of these
encumbrances should receive preference over the other.

Held:
The building is subject to the real estate mortgage, in favour of Iya. Iyas right to foreclose not only the
land but also the building erected thereon is recognised.

While it is true that real estate connotes the land and the building constructed thereon, it is obvious that
the inclusion of the building, separate and distinct from the land, in the enumeration of what may
constitute real properties (Article 415), could only mean that a building is by itself an immovable
property. Moreover, in view of the absence of any specific provision to the contrary, a building is an
immovable property irrespective of whether or not said structure and the land on which it is adhered to
belong to the same owner.

A building certainly cannot be divested of its character of a realty by the fact that the land on which it is
constructed belongs to another.

In the case at bar, as personal properties could only be the subject of a chattel mortgage and as
obviously the structure in question is not one, the execution of the chattel mortgage covering said
building is clearly invalid and a nullity. While it is true that said document was correspondingly
registered in Chattel Mortgage Registry of Rizal, this act produced no effect whatsoever, for where the
interest conveyed is in the nature of real property, the registration of the document in the registry of
chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of strong
materials produced no effect as far as the building is concerned.
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BORLOUGH V. FORTUNE ENTERPRISES, INC. and CA

On March 8, 1952, the United Car Exchange sold to the Fortune Enterprises, Inc
Chevrolet (1947); Plate No. 34-1465
Type : Sedan; Motor No. EAA-20834 (Exhibit D).
The same car was sold by the Fortune Enterprises, Inc. to Salvador Aguinaldo
Aguinaldo executed a promissory note for not paying in full. The amount of P2,400 payable in 20
installments including interest thereon at 12 per cent per annum.
To secure the payment of promissory note, Aguinaldo executed a deed of chattel mortgage over
said car. The deed was duly registered in the office of the Register of Deeds of Manila at 1:12
p.m. on March 11, 1952.
Aguinaldo, as the buyer-mortgagor defaulted in the payment of the installments due, counsel for
Fortune Enterprises Inc. addressed a letter on May 16, 1952, requesting him to make the
necessary payment and to keep his account up to date, to that no court action would be resorted
to.
It further appears that the above-described car found its way again into the United Car Exchange
which sold to O. N. Borlough on April 6, 1952, in cash for P4,000. Accordingly, he registered it on
the following day with the Motor Vehicles Office.
It also appears from the record that defendant 0. N. Borlough took possession of the vehicle from
the time he purchased it
On July 10, 1952, Fortune Enterprises, Inc. brought action against Salvador Aguinaldo to recover
the balance of the purchase price.
Borlough filed a third-party complaint, claiming the vehicle.
Thereupon, Fortune Enterprises, Inc. amended its complaint, including Borlough as a defendant
and alleging that he was in connivance with Salvador Aguinaldo and was unlawfully hiding and
concealing the vehicle in order to evade seizure by judicial process.
Borlough answered alleging that he was in legal possession thereof, having purchased it in good
faith and for the full price of P4,000, and that he had a certificate of registration of the vehicle
issued by the Motor Vehicles Office, and he prayed for the dismissal of the complaint, the return
of the vehicle and for damages against the plaintiff.
The vehicle was seized by the sheriff of Manila on August 4, 1952 and was later sold at public
auction.
The CFI rendered judgment in favor of Borlough, it ordered Fortune Enterprices to pay Borlough the
sum of P4,000, with interest at 6 per cent per annum, from the date of the seizure of the car on
August 4, 1952, and in addition thereto, attorney's fees in the sum of P1,000.
 Upon appeal to the CA, it modified of the judgment on the ground that the mortgage was superior,
being prior in point of time, to whatever rights may have been acquired by Borlough by reason of his
possession and by the registration of his title in the Motor Vehicle Office.

ISSUE: Whether the prior mortgage executed over a motor vehicle, registered under the Chattel
Mortgage Law only, without annotation thereof in the Motor Vehicles Office, should prevail over a
subsequent registration of the vehicle in the Motor Vehicles Office accompanied by actual possession of
the motor vehicle. NO

HELD: the court upheld the right to vehicle of Borlough as against the previous and prior
mortgage to Fortune Enterprises, which failed to record its lien in accordance with the Revised
Motor Vehicles Law

It is to be noted that under section 4 (b) of the Revised Motor Vehicles Law the Chief of the Motor
Vehicles Office is required to enter or record xxx transfers of motor vehicles "with a view of making and
keeping the same and each all of them as accessible as possible to and for persons and officers properly
interested in the same," and to "issue such reasonable regulations governing the search and examination
of the documents and records . . . as will be consistent with their availability to the public and their safe
and secure prevention."

Two recording laws are here being invoked, one by each contending party the Chattel Mortgage Law
(Act No. 1508), by the mortgagor and the Revised Motor Vehicles Law (Act No. 3992), by a purchaser in
possession. What effect did the passenger of the Revised Motor Vehicles Law have on the previous
enactment?
Passage of the Revised Motor Vehicles Law had the effect of repealing the Chattel Mortgage Law, as
regards registration of motor vehicles and of the recording of transaction affecting the same.
The provisions of the Revised Motor Vehicles Law on registration are not inconsistent with does of
the Chattel Mortgage Law.
Implied repeals are not favored; implied repeals are permitted only in cases of clear and positive
inconsistency.
The first paragraph of section 5 indicates that the provisions of the Revised Motor Vehicles Law
regarding registration and recording of mortgage are not incompatible with a mortgage under the
Chattel Mortgage Law.
The section merely requires report to the Motor Vehicles Office of a mortgage; it does not
state that the registration of the mortgage under the Chattel Mortgage Law is to be dispensed
with.
 We have, therefore, an additional requirements in the Revised Motor Vehicles Law, aside from
the registration of a chattel mortgage, which is to report a mortgage to the Motor Vehicles Office,
if the subject of the mortgage is a motor vehicle; the report merely supplements or complements the
registration.
The recording provisions of the Revised Motor Vehicles Law, therefore, are merely complementary
to those of the Chattel Mortgage Law.
A mortgage in order to affect third persons should not only be registered in the Chattel Mortgage
Registry, but the same should also be recorded in the motor Vehicles Office as required by section 5
(e) of the Revised Motor Vehicles Law. And the failure of the respondent mortgage to report the
mortgage executed in its favor had the effect of making said mortgage ineffective against
Borlough, who had his purchase registered in the said Motor Vehicles Office.

Revised Motor Vehicles Law Chattel Mortgage Law

is a special legislation enacted to "amend and is a general law covering mortgages of all kinds of
compile the laws relative to motor vehicles personal property.
the latest attempt to assemble and compile the
motor vehicle laws of the Philippines, all the earlier
laws on the subject having been found to be very
deficient in form as well as in substance
it had been designed primarily to control the
registration and operation of motor vehicles

On failure to comply with the statute, the transferee's title is rendered invalid as against a subsequent
purchaser from the transferor, who is enabled by such failure of compliance to retain the indicia of
ownership, such as a subsequent purchaser in good faith, or a purchaser from a conditional buyer in
possession; and the lien of a chattel mortgage given by the buyer to secure a purchase money loan never
becomes effective in such case as against an innocent purchaser. (60 Corpus Juris Secundum, p. 171.)

One holding a lien on a motor vehicle, in so far as he can reasonably do so, must protect himself and
others thereafter dealing in good faith by complying and requiring compliance with the provisions
of the laws concerning certificates of title to motor vehicles, such as statutes providing for the
notation of liens or claims against the motor vehicle certificate of title or manufacturer's certificate,
or for the issuance to the mortgagee of a new certificate of ownership.

Where the lien holder has satisfied himself that the existence of the lien is recited in the certificate of title,
he has done all that the law contemplates that he should do, and there is notice to the public of the existing
lien, which continues valid until the record shows that it has been satisfied and a new certificate issued on
legal authority, even though another certificate which does not disclose the lien is procured as the result of
false statements made in the application therefore, and the vehicle is purchased by a bona fide purchaser.
The holder of a lien who is derelict in his duty to comply and require compliance with the statutory provisions
acts at his own peril, and must suffer the consequence of his own negligence; and accordingly, he is not
entitled to the lien as against a subsequent innocent purchaser filed as provided by other chattel mortgage
statutes. The rule is otherwise, however, as against claimants not occupying the position of innocent
purchaser, such as a judgment creditor, or one acquiring title with actual notice of an unregistered lien, and
the statutes do not protect a purchaser holding under registered title if a link in the title is forgery. Moreover,
such statute will not impair vested rights of a mortgage under a chattel mortgage duly recorded. (60 C.J.S.,
pp. 181-182.
The Revised Motor Vehicles Law, expressly and specifically regulate the registration, sale or transfer and
mortgage of motor vehicles. The following provisions of said law may help decide the legal question now
under consideration:
SEC. 5 (c) Reports of motor vehicle sales. On the first day of each month, every dealer
in motor vehicles shall furnish the Chief of the Motor Vehicles Office a true report showing
the name and address of each purchase of a motor vehicle during the previous month and
the manufacturer's serial number and motor number; a brief description of the vehicle, and
such other information as the Chief of the Motor Vehicles Office may require.
SEC. 5 (e) Report of mortgages. Whenever any owner hypothecates or mortgage any
motor vehicle as surety for a debt or other obligation, the creditor or person in whose favor
the mortgage is made shall, within seven days, notify the Chief of the Motor Vehicles Office
in writing to the effect, stating the registration number of the motor vehicle, date of
mortgage, names and addresses of both parties, and such other information as the Chief
of the Motor Vehicles Office may require. This notice shall be signed jointly by the parties
to the mortgage.
On termination, cancellation or foreclosure of the mortgage, a similar written notice signed
by both parties, shall be forwarded to the Chief of the Motor Vehicles Office by the owner.
These notice shall be filed by the Chief of the Motor Vehicles Office in the motor
records, and in the absence of more specific information, shall be deemed evidence
of the true status of ownership of the motor vehicle. (Revised Motor Vehicles Law.)
 4
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs.HON. COURT OF
APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY

G.R. No. 103576 August 22, 1996

FACTS:
Petitioner Chua Pac, the president and general manager of co-petitioner Acme executed a
chattel mortgage in favor of private respondent Producers Bank as a security for a loan of
P3,000,000. A provision in the chattel mortgage agreement was to this effect:

"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal
of the former note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes and/or accommodations without the
necessity of executing a new contract and this mortgage shall have the same force and effect
as if the said promissory note or notes and/or accommodations were existing on the date
thereof. This mortgage shall also stand as security for said obligations and any and all other
obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether
such obligations have been contracted before, during or after the constitution of this mortgage."

In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional loan
totalling P2,700,000.00 which was also duly paid.

Another loan was again extended (P1,000,000.00) covered by four promissory notes for
P250,000.00 each, but went unsettled prompting the bank to apply for an extrajudicial
foreclosure with the Sheriff.

ISSUE:
Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise
extend its coverage to obligations yet to be contracted or incurred?

HELD:
No. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage, however,
can only cover obligations existing at the time the mortgage is constituted. Although a promise
expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covering the newly contracted debt
is executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred obligation can constitute an
act of default on the part of the borrower of the financing agreement whereon the promise is
written but, of course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.